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Msg  222 of 229  at  11/7/2019 2:26:19 PM  by


No growth in Permian basin?

Interesting article on a dramatic slowdown in the Permian shale formations - some of it due to a growing glut of crude on the market, some of it because of the terribly low prices NG has been fetching. Also note the concerns about flaring NG from oil wells - first time I've seen an O&G exec talk about flaring and climate change.
A mostly NG company I used to own, CHK, also says BK may be on the table, they're in debt up to their necks and don't have the cash flow to reduce it - loan covenants could be broken in 2020, causing a cascade of defaults. None of this is good news for rev growth of TPL.

A few high-profile shale executives say the glory days of shale drilling are over.

In a round of earnings calls, the financial results were mixed. A few companies beat earnings estimates, while others fell dramatically short.

But aside from the individual performances, there were some more newsworthy comments from executives on the state of the industry. A common theme emerged from several notable shale executives: the growth frenzy is coming to an end.

The chief executive of Pioneer Natural Resources, Scott Sheffield, said that the Permian basin is “going to slow down significantly over the next several years,” and he noted on the company’s latest earnings call that the company is also acting with more restraint because of pressure from shareholders not to pursue unprofitable growth. “I’ve lowered my targets and my annual targets, a lot of it has to do with…to start with the free cash flow model that public independents are adopting,” Sheffield said.

But there are also operational problems that have become impossible to ignore for the industry. He listed several factors that explain the Permian slowdown: “the strained balance sheets lot of the companies have, the parent-child relationships that companies are having, people drilling a lot of Tier 2 acreage,” Sheffield said. “So I'm probably getting much more optimistic about 2021 to 2025 now in regard to oil price.” In other words, U.S. shale is slamming on the brakes, which may yet engineer a rebound in global oil prices.

heffield wasn’t alone. Mark Papa, CEO of Centennial Resource Development (and former CEO of EOG Resources), was also downbeat on growth prospects. “At a September investor conference, I predicted that 2020 total U.S. year-over-year oil growth would be 700,000 barrels per day which at that time was considerably below consensus,” Papa said on an earnings call on Tuesday. “Given additional data I now think that 2020 year-over-year oil growth will be roughly 400,000 barrels per day which is below current consensus.”He noted that U.S. oil production has been essentially flat for 9 out of the last 10 months, and “it’s likely to slightly decline over the next six months.”  

Echoing Sheffield’s comments, Mark Papa said that this wasn’t only due to spending cuts. “Most people will ascribe the low U.S. growth to capital discipline. But I think the larger reason is what I've been talking about for several years the shift to Tier 2 and 3 drilling locations in all shale plays and increasing parent-child issues in the Permian,” Papa said.

He added that this is not a temporary problem. “I believe U.S. shale production on a year-over-year growth basis will be considerably less powerful in 2021 in later years than most people currently expect,” Papa said. “I'll leave it to others to opine on what this means for global oil markets.”

Notably, Scott Sheffield of Pioneer Natural Resources went out of his way to castigate the industry for the runaway flaring rates in the Permian. “We do not connect any new horizontal wells to production unless the gas line is already in place,” Sheffield said. “I think that’s something that should be adopted by all producers in the Permian Basin.”

The tone of his comments seemed to reveal a concern about the industry losing its social license to operate because of rampant flaring and growing concerns about climate change. Sheffield also made an effort to point out that Pioneer does not have exposure to federal land, minimizing risk from a political backlash following the 2020 election.  

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